WhatsApp wishes and the economic reality of Chinese imports

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Social media is a veritable greenhouse for and of ideas born out of public sentiments. The flavour of the week is boycott of goods made in China. The anger is inescapable—driven by China repeatedly vetoing India’s efforts to designate Masood Azhar a terrorist. The messaging varies from the emotional call to Indian blood to prove itself to clever caricatures. The favoured medium is WhatsApp—one popular post warns Indians not to buy Chinese crackers as they will emit fumes that kill.

The call for the boycott of Chinese goods has the romance of the Mahatma’s campaign to burn foreign garments during British rule and seemingly the facility of choice. It has captured the minds of the masses, many ministers and Members of Parliament. So how has the call panned out? There is traction in words. Has it impacted consumer choice and consumption? The answer depends on who is telling the story. Anecdotal narrative is stranded between stories of boycott-led slowdown in sales and upsurge of online sales during the October Fest.

The jury is out on if—and how much—Chinese exports will be hit. What is clear though is that traders who already paid for and imported goods will be hit first by the boycott. The moot point is whether the boycott will engender a material change in attitude in Beijing. India is part of a globalised inter-dependent economy. Anger and sentiments are but signals, not instruments of state craft. The imperative to secure India demands a sound strategy.

To appreciate the magnitude of the quest, one must look at the footprint of China in India’s economy. One way is to look at the screen shot of the medium and the messaging—the messages are keyed in and viewed on phones/tabs/pads/laptops/desktops, which are wholly made in China or are powered by components produced in China. The bytes are travelling via networks possibly powered by Chinese electronics and the connectivity itself may be via a China-made SIM card or a router made by ZTE or Huawei. Sure, the backlit medium could be from Korea or Japan, but it is worth remembering that between them, Japan and Korea import electronics worth over $70 billion from China.

A more holistic view is provided by data from the Director General of Foreign Trade. In 2015-16, China imported goods worth $9 billion, and India worth $61 billion. India imports more from China than any other country and more than its imports from the next three—the US, Saudi Arabia and the UAE. Of course $61 billion is a lot of money, but to get a real assessment of what might make China pay attention, consider the size of its export cake. In 2015, China exported goods worth $2.15 trillion (roughly the size of India’s GDP). India accounts for less than 3 per cent of export earnings for China.

And what does India import from China? Not just toys or crackers or phones. Its top five imports are: Electronics and electricals worth $19.7 billion, nuclear reactors and machinery worth $10.5 billion, organic chemicals worth $6 billion, fertilisers worth $3.2 billion and iron and steel worth $2.3 billion. The top 10 imports account for over $48 billion. Yes, the imports are a tad lower this year, but the dependence is unmistakable. By the way, firecrackers/explosives and combustibles account for just about a fifth of a million dollars.
The question is can India interrupt its nuclear programme and power projects—or disrupt its manufacturing base? Electronic and electricals imports form part of the supply chain—value addition creates jobs. Organic chemicals are again necessary inputs and import of fertilisers is critical to food security. The import of iron and steel is vital for automobile manufacturing and exports. If WhatsApp wishes were horses, China could abide. Unsurprisingly, Commerce Minister Nirmala Sitharaman has dubbed ban on Chinese imports “not feasible”. Clearly India’s response to sentiments will have to be pragmatic. This is not an argument against or a judgement on the expression of anger— far from it. The point is expression of anger must be made to matter.

India and China were similarly placed in terms of per capita income in the early Nineties—both liberalised the economy around the same time. In 2000, this columnist had written (http://bit.ly/2dDWNSl) that the surge of imports delighted consumers, left industry in panic and the government confused. China entered WTO in 2001, overtook Japan as Asia’s top exporter by 2004, and surpassed US in 2007 and Germany in 2009 to emerge as the world’s top exporter. India’s share of merchandise trade in 1993 was 0.6 per cent while that of China was 2.1 per cent. By 2015 India’s share grew to 1.7 per cent while that of China to 14.2 per cent. China did what was necessary, India did not.

The anger and calls for a ban must give way to a campaign for substitution. India needs to usher in a strategic replacement programme—go beyond the idea of Make in India. India sources components and machinery for nuclear reactors and boilers worth $21 billion from China, the US, Germany, Japan and Korea—half of it from China. The primary question is: must it import and must it from China? Yes, fertilisers are critical. Why not play cupid between gas-rich Gabon and phosphate-rich Morocco to source it from Africa? Again why not make in India?

The import bill of electronics and electrical equipment is worth over $35 billion—again, over half from China. A big reason is pricing—for producers and consumers. The success of the LED bulbs initiative—where price was brought down from over `300 to `38 in two years—could provide some answers. But questions need to be asked. Why is India importing furniture and mattresses worth nearly a billion dollars from China? Or ceramics, glassware, toys, knitted fabrics, toys etc. worth $2 billion? There is no escaping the fact that India needs to open up, incentivise technology induction, and alter procurement, taxation and a host of policies to be competitive.

Moolah power is a reality. China’s geopolitical status stems from its economic might. India must strive to match it—align economic security with national security—if it is serious about its stature.shankkar.aiyar@gmail.com

Shankkar Aiyar is the Author of Accidental India: A History of the Nation’s Passage through Crisis and Change

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